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Australian Property Market Forecast: What to Expect in 2023?

By Ershad Ullah February 6, 2023 | Tags:

According to property experts, there is a window of opportunity for cash-rich investors who have been sitting on their hands throughout the pandemic to take the plunge before housing prices begin another cycle of increase. With most of the price decline presumably over, interest rates are unlikely to climb much further, and rents are forecast to stay high. However, much will rely on what the Reserve Bank of Australia (RBA) does next.

Louis Christopher, SQM Research founder, anticipates prices to begin to rebound in the second half of this year as long as the RBA’s cash rate remains below 4%. The current cash rate is 3.35 percent. He anticipates that Australia’s central bank would raise rates in February and maybe in March when inflation rises, before returning to neutral. The RBA’s next meeting is scheduled for February 7, and markets anticipate the cash rate to peak at 3.5% in the first half of this year.

According to Christopher, the foundations for rising pricing are in place, including more migration, a robust economy with low unemployment and excellent job growth, and rents that are anticipated to stay high.

Andrew Wilson, the chief economist of My Housing Market, concurs, stating that customers seem to be brushing off the dread and gloom that gripped the country at the start of the epidemic. He argues that consumer confidence is rising, the economy is performing well, and rents are likely to remain high.

Will Mortgage Interest Rates Exceed 4%?

According to Lloyd Edge, the founder and managing director of buyers agency Australian  Property Professionals, the property market is currently encountering issues. With repeated interest rate hikes making it a harder environment, it is now a buyer’s market. Lloyd explains that this means purchasers have more alternatives to select from and more opportunities to haggle on pricing. This gives a fantastic chance for intelligent investors to make smart, strategic investments.

According to AMP senior economist Shane Oliver, prices nationwide might fall another 9% or more if rate rises continue to damage the local market, culminating in a total drop of 15 to 20% – the largest ever peak-to-trough drop. However, he anticipates that prices will bottom out in the third quarter of this year before beginning to rise late this year as our central bank pushes toward rate cuts.

Inflation has proven difficult to control, but the slowing of rate hikes signals we may be approaching the pinnacle of interest rates. NAB anticipates another 0.5% increase by March 2023, bringing the total to 3.60%. Meanwhile, Westpac and ANZ predict that interest rates will peak at 3.85 percent by May.

BankMaximum cash rateMonth of peak
NAB3.60%March 2023
Westpac3.85%May 2023
ANZ3.85%May 2023

The CBA anticipates a big rewind to 2.60 percent by the end of the year, Westpac predicts a return to 2.85 percent, while NAB and ANZ anticipate a return to 3.50 percent. It’s anyone’s guess if any of the banks will be correct, but the level at which rates peak and then begin to fall will have a huge impact on how house values perform.

Will Housing Prices Fall in 2023?

According to CoreLogic data, rentals have increased by 22.2 percent since the start of the upswing in September 2020, the highest rental increase on record. Rents in most major cities and regional regions are still growing, and vacancy rates remain low, while the rate of rise is reducing.

According to Arjun Paliwal, the founder and director of research at investment buyers’ agency Investor-Kit, the persistent renting problem will encourage more renters to become homeowners. Changes in NSW that allow first-time purchasers to pay a yearly tax rather than up-front stamp duty on purchases up to $1.5 million would encourage more first-time buyers to join the Sydney market, he claims.

Investors Return To the Property Market

First-time buyers are anticipated to return to the market first, bolstered by some of the present first-time buyer incentives. Louis Christopher, SQM Research owner, and managing director says

that he sees some stability around interest rates and assumes the cash rate does stabilize at the 4% level. He believes we will see more first-time buyers in the market in 2023, followed by investors. As a result, rental returns will attract some investors.

Is It the Right Time To Buy a House in Australia?

Investors often opt to purchase properties in our major cities’ central and inner rings. Not only are they less expensive than freestanding residences, but they may be simpler for landlords to operate due to the outsourcing of common area upkeep as part of the strata fees. Lower-priced flats are often sought after by both investors and first-time purchasers in Sydney and Melbourne.

Because it takes months for investors to organize and locate a house, by beginning their search immediately, they will be able to purchase before other investors and first-time buyers flood the market. If the cash rate rises to 4% or more, borrowing capacity will be restricted, outweighing the other variables that are projected to push up prices.

When you consider becoming a homeowner, it is important to first thoroughly research property pricing, study local markets, and assess your finances. Because your income is likely to be smaller if you invest alone, you won’t be able to borrow as much as someone who invests with a partner. However, if you purchase with a partner, you may be able to afford larger repayments. To be safe, put yourself through a “stress test” at a rate that is two or three percent higher than the current market rate. In this manner, you can provide a buffer in the case of a rate increase.

Things That Should be Considered Before Investing

When acquiring a home, you should be aware that you may be required to put down a cash deposit of 15-20% of the purchase price. Paying 20% or more ahead will save you from having to pay Lender’s Mortgage Insurance (LMI). In the long term, this saves money.

When the time comes to buy and manage your investment property, it’s critical to engage with serious and experienced specialists that understand the ins and outs of property investing. An Accountant, or a specialist Tax Accountant, can assist you in navigating the complicated tax rules governing property investment.

Working with an SMSF Accountant or Small Business Advisor is highly recommended best practice if you’re an enterprise investor, particularly if you want to use your self-managed superannuation fund (SMSF) to invest in property. You’ll also want to engage with a Business Advisor or Business Accountant as a property investor to help you find the best properties to invest in, manage your money, and plan for the future.

To summarize, if you wish to reduce your property taxes, you should consult with a Property Tax Specialist or SMSF Tax Specialist. They can help you reduce the amount of tax you pay on your property investment since they are specialists in property tax laws and SMSF rules. This may free up operating cash so you can continue to build your portfolio.

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